Time at risk


Time at Risk is a time-based risk measure designed for corporate finance practice.
TaR represents certain quantile for a given probability distribution, so is similar to Value at Risk.
However, TaR measures risk amount as time rather than value.

Definition and examples

Mathematical definition of TaR is same as that of VaR.
However, value-based random variable is replaced with time-based one, and given time-horizon is replaced with given finance structure.
Examples comparing VaR and TaR are as below.
For confidence level α,
Thus for same α, lower VaR means lower risk and higher TaR means lower risk.

Applications

TaR is a simple measure for whom are familiar with VaR, so is easy to communicate by. TaR also can be used for supplementary purpose to VaR analysis.
Applying TaR in financial models, practitioners can analyze sources of risks and take remedial actions in corporate finance planning;
not only for liquidity risk mentioned above, but also for any risks that demands time-based analysis.
When TaR is applied to a household's financial planning it can measure longevity risk, and
TaR in this case is referred to as Age at Risk.